<PAGE>
                              CAUTIONARY STATEMENT
 
    ARCADIA FINANCIAL LTD. (THE "COMPANY"), OR PERSONS ACTING ON BEHALF OF THE
COMPANY, OR OUTSIDE REVIEWERS RETAINED BY THE COMPANY MAKING STATEMENTS ON
BEHALF OF THE COMPANY, OR UNDERWRITERS OF THE COMPANY'S SECURITIES, FROM TIME TO
TIME, MAY MAKE, IN WRITING OR ORALLY, "FORWARD-LOOKING STATEMENTS" AS DEFINED
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "ACT"). THIS
CAUTIONARY STATEMENT, WHEN USED IN CONJUNCTION WITH AN IDENTIFIED
FORWARD-LOOKING STATEMENT, IS FOR THE PURPOSE OF QUALIFYING FOR THE "SAFE
HARBOR" PROVISIONS OF THE ACT AND IS INTENDED TO BE A READILY AVAILABLE WRITTEN
DOCUMENT THAT CONTAINS FACTORS WHICH COULD CAUSE RESULTS TO DIFFER MATERIALLY
FROM SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS ARE IN ADDITION TO ANY OTHER
CAUTIONARY STATEMENTS, WRITTEN OR ORAL, WHICH MAY BE MADE OR REFERRED TO IN
CONNECTION WITH ANY SUCH FORWARD-LOOKING STATEMENT.
 
    THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE EFFECT ON
THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE
DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
OR STATEMENTS.
 
LIQUIDITY AND ACCESS TO CAPITAL RESOURCES
 
    NEGATIVE OPERATING CASH FLOWS.  The Company's business requires substantial
cash to support the payment of dealer participations, the funding of spread
accounts in connection with securitizations, the purchase of loans pending
securitization, the financing of repossessed inventory and other cash
requirements, in addition to debt service and dividends. These cash requirements
increase as the volume of the Company's loan purchases increases. To the extent
that increases in the volume of loan purchases and securitizations provide
income, a substantial portion of such income is received by the Company in cash
over the life of the loans. The Company has operated historically on a negative
operating cash flow basis and expects to continue to do so for so long as the
Company's volume of loan purchases continues to grow. As a result of the
Company's historical growth rate, the Company has used increasingly larger
amounts of cash than it has generated from its operating activities. The Company
has funded these negative operating cash flows principally through borrowings
from financial institutions, sales of equity securities and sales of senior and
subordinated notes. The Company's ability to execute its growth strategy depends
upon its continued ability to obtain substantial additional long-term debt and
equity capital through access to the capital markets or otherwise. There can be
no assurance that the Company will have access to the capital markets when
needed or will be able to obtain financing upon terms reasonably satisfactory to
the Company. Factors which could affect the Company's access to the capital
markets, or the costs of such capital, include changes in interest rates,
general economic conditions, the perception in the capital markets of the
Company's business, results of operations, leverage, financial condition and
business prospects, and the performance of the Company's securitization trusts.
In addition, covenants with respect to the Company's debt securities and credit
facilities may significantly restrict the Company's ability to incur additional
indebtedness and to issue new classes of preferred stock.
 
    POTENTIAL INABILITY TO REFINANCE EXISTING INDEBTEDNESS.  The Company's
ability to repay its outstanding indebtedness at maturity may depend on its
ability to refinance such indebtedness, which could be adversely affected if the
Company does not have access to the capital markets for the sale of additional
debt or equity through public offerings or private placements on terms
reasonably satisfactory to the Company. See "Negative Operating Cash Flows"
above.
 
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    DEPENDENCE ON WAREHOUSE FINANCING.  The Company depends on warehouse
facilities with financial institutions or institutional lenders to finance its
purchase of loans on a short-term basis pending securitization. At August 31,
1997, the Company had $647.7 million of warehouse facilities through
institutionally managed asset-backed commercial paper conduits, of which $287.8
million was available. These facilities expire in December 1997 and July 1998,
subject to renewal or extension at the lenders' option. Implementation of the
Company's growth strategy requires continued availability of warehouse
facilities and may require increases in the capacity of warehouse facilities.
There can be no assurance that such financing will be available on terms
reasonably satisfactory to the Company. The inability of the Company to arrange
additional warehouse facilities or to extend or replace existing facilities when
they expire would have a material adverse effect on the Company's business,
financial condition and results of operations and on the Company's outstanding
securities.
 
    DEPENDENCE ON SECURITIZATION.  The Company has relied upon its ability to
aggregate and sell loans as asset-backed securities in the secondary market to
generate cash proceeds for repayment of warehouse facilities and to purchase new
loans from dealers. Since inception, the Company has securitized approximately
$8.1 billion of automobile loans. At August 31, 1997, approximately $4.2 billion
of these loans were outstanding and in September 1997 the Company completed an
additional $775.0 million securitization. Accordingly, adverse changes in the
Company's asset-backed securities program or in the asset-backed securities
market for automobile receivables generally could materially adversely affect
the Company's ability to purchase and resell loans on a timely basis and upon
terms reasonably satisfactory to the Company. The Company endeavors to effect
public securitizations of its loans on at least a quarterly basis. However,
market and other considerations, including the conformity of loans to insurance
company and rating agency requirements, could affect the timing of such
transactions. Any delay in the sale of loans beyond a quarter-end would
eliminate the related gain on sale in the given quarter and adversely affect the
Company's reported earnings for such quarter. All of the Company's
securitizations since March 1993 and one of the Company's warehouse facilities
have utilized credit enhancement in the form of financial guaranty insurance
policies issued by FSA to achieve "AAA/Aaa" ratings with respect to the
asset-backed securities. The Company believes that financial guaranty insurance
policies reduce the costs of the securitizations and such warehouse facility
relative to alternative forms of credit enhancements available to the Company.
The Company has committed to use FSA for future credit enhancement on insured
securitizations through 1998 in consideration for certain limitations on FSA
insurance premiums. FSA is not required to insure Company-sponsored
securitizations and there can be no assurance that it will continue to do so or
that future Company-sponsored securitizations will be similarly rated.
 
LOAN PERFORMANCE RISKS
 
    POTENTIAL NEGATIVE EFFECTS ON FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
LIQUIDITY.  The Company's business, financial condition, results of operations
and liquidity depend, to a material extent, on the performance of loans
purchased and sold by the Company. When such loans are sold in securitizations,
the Company recognizes gain on sale. Finance income receivable, the Company's
principal asset, has been calculated using assumptions concerning future
default, prepayment and net loss rates on securitized loans that are consistent
with the Company's historical experience and market conditions and present value
discount rates that the Company believes would be requested by an unrelated
purchaser of an identical stream of estimated cash flows. Management believes
that the Company's estimates of excess cash flow were reasonable at the time
each gain on sale of loans was recorded. However, the actual rates of default
and/or prepayment and/or net loss on such loans may exceed those estimated for
purposes of calculating the Company's finance income receivable and consequently
may adversely affect anticipated future excess cash flow. The Company
periodically reviews its default, prepayment and net loss assumptions in
relation to current performance of the loans and market conditions, and, if
necessary, writes down the balance of finance income receivable. The Company
made a significant adjustment to its finance income receivable at March 31, 1997
after completing such a review, primarily relating to the recovery rates on
repossessed vehicles and the Company's disposition strategy. The Company's
business, financial condition, results of
 
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operations and liquidity could be materially adversely affected by such
adjustments in the future. No assurance can be given that loan losses and
prepayments will not exceed the Company's estimates or that finance income
receivable could be sold at its stated value on the balance sheet, if at all.
 
    POSSIBLE RESTRICTIONS ON CASH FLOW FROM SECURITIZATIONS.  The Company's
future liquidity and financial condition, and its ability to finance the growth
of its business and to repay or refinance its indebtedness, will depend to a
material extent on distributions of excess cash flow from securitization trusts.
The Company's agreements with FSA provide that the Company must maintain in a
spread account for each insured securitization trust specified levels of excess
cash during the life of the trust. These spread accounts are initially funded
out of initial deposits or cash flows from the related trust. Thereafter, during
each month, excess cash flow due to Arcadia Receivables Finance Corp. (formerly
Olympic Receivables Finance Corp.) ("ARFC"), from all insured securitization
trusts is first used to replenish any spread account deficiencies and is then
distributed to the Company. The timing and amount of distributions of excess
cash from securitization trusts varies based on a number of factors, including
but not limited to loan delinquencies, defaults and net losses, the rate of
turnover of repossession inventory and recovery rates, the ages of loans in the
portfolio, prepayment experience and required spread account levels. A
deterioration of the Company's loan delinquencies, cumulative defaults or net
losses, or a build-up in repossession inventory, or the continuing increase in
the proportion of repossession inventory sold in the wholesale auction markets,
or the increase in loans entering the seasoning period, could reduce excess cash
available to the Company. At August 31, 1997, the Company had an aggregate of
$222.9 million of restricted cash in spread accounts. There can be no assurance
that in the future the Company will not experience an interruption of excess
cash flow from ARFC, which could adversely affect the Company's ability to pay
its obligations, including the Notes.
 
    Each insured securitization trust has certain portfolio performance tests
relating to levels of delinquency, defaults and net losses on the loans in such
trust based in part on the relative percentage of Premier and Classic loans.
Portfolio performance tests require that the loan portfolio of each insured
securitization trust (i) have an average delinquency ratio not equal to or in
excess of a specified percentage, (ii) have a cumulative default rate not equal
to or in excess of specified percentages which vary based on the aging of the
loan portfolio, and (iii) have a cumulative net loss rate not equal to or in
excess of specified percentages which vary based on the aging of the loan
portfolio. If any of these tests are exceeded (a "violation"), the amount
required to be retained in the spread account related to such securitization
trust will be increased to an amount generally equal to the greater of 10% of
the outstanding balance of loans or 1% of the original balance of loans held by
the securitization trust. As a consequence, a violation generally will decrease
excess cash flow available from such securitization trust until loan portfolio
performance has returned to the required limits for a specified period,
generally three to five months, unless waived by FSA. FSA and the Company have
an arrangement under which, if any insured securitization trust exceeds the
specified portfolio performance tests, ARFC may, in lieu of retaining the excess
cash from that securitization trust in the related spread account, pledge an
equivalent amount of cash, which has the effect of preventing the violation of
the portfolio performance test. Although certain trusts, primarily those that
contained loans originated in 1995, exceeded portfolio performance tests in the
first eight months of 1997 and are still in excess of such tests, this
arrangement with FSA has prevented a violation, although it has reduced the
amount of cash that would otherwise have been available to the Company if the
Company had sought and received a waiver of such violation from FSA. A
deterioration of the Company's delinquencies, cumulative defaults or net losses
would result in one or more additional existing securitization trusts exceeding
one or more of these tests in the absence of changes to the trigger levels.
There can be no assurance that, in such event, waivers will be available from
FSA permitting payments to ARFC.
 
    Upon the occurrence of certain events with respect to any series of
asset-backed securities insured by FSA, including the failure to meet loan
portfolio performance tests of the nature described above but at significantly
higher levels, or upon a breach of the collateral coverage requirements of the
FSA-insured warehouse facility (an "Insurance Agreement Event of Default"), the
Company will be in default under its
 
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insurance agreement with FSA. Upon an Insurance Agreement Event of Default,
unless waived by FSA, FSA may suspend distributions of cash flow from the
related securitization trust and all other FSA-insured trusts (including the
FSA-insured warehouse facility) until the asset-backed securities have been
redeemed, capture excess cash flow from performing trusts, increase its premiums
and replace the Company as servicer with respect to all FSA-insured trusts.
There can be no assurance that a further deterioration of the Company's loan
delinquencies, gross charge-offs and net losses would not result in an Insurance
Agreement Event of Default, which could adversely affect the Company's ability
to satisfy its obligations, including the Notes. Certain of the Company's
securitization trusts exceeded such insurance agreement thresholds prior to 1996
and the Company obtained waivers from FSA to permit distributions of cash to
ARFC. There can be no assurance that in the future, if such thresholds are
exceeded, waivers will be available.
 
    In addition, the spread account for each securitization is
cross-collateralized to the spread accounts established in connection with the
Company's other securitization trusts (including the FSA-insured warehouse
facility) such that excess cash flow from a performing securitization trust may
be used to support negative cash flow from, or to replenish a deficient spread
account in connection with, a nonperforming securitization trust, thereby
further restricting excess cash flow available to ARFC. If excess cash flow from
all insured securitization trusts is not sufficient to replenish all such spread
accounts, no cash flow would be available to the Company from ARFC for that
month. In January 1996, approximately $0.5 million of the Company's $63.6
million of restricted cash in spread accounts at December 31, 1995 under insured
securitization trusts was utilized for payments on related asset-backed
securities due to insufficient current cash flow in four such securitization
trusts. Excess cash flows from the other securitization trusts were not
sufficient to replenish such withdrawals and, consequently, the Company did not
receive excess cash flow from Olympic Receivables Finance Corp. (the predecessor
of ARFC) during that month. In February 1996, current excess cash flows again
began releasing to the Company. There can be no assurance that in the future the
Company will not experience an interruption of excess cash flow from ARFC such
as occurred in January 1996, which could adversely affect the Company's ability
to pay its obligations, including the Notes. FSA also has a collateral security
interest in the stock of ARFC. If FSA were to foreclose on such security
interest following an event of default under an insurance agreement with respect
to a securitization trust (including the FSA-insured warehouse facility), FSA
could preclude payment of dividends by ARFC to the Company, thereby eliminating
the Company's right to receive distributions of excess cash flow from all the
FSA-insured securitization trusts. The Company's right to service the loans sold
in securitizations insured by FSA is also generally subject to the discretion of
FSA. Accordingly, there can be no assurance that the Company will continue as
servicer for such loans and receive related servicing fees.
 
    Any increase in limitations on cash flow available to the Company from ARFC
(including any increase in the amount of cash pledged under the arrangement with
FSA), inability to obtain any necessary waivers from FSA or termination of
servicing arrangements could materially adversely affect the Company's cash flow
and liquidity, and, ultimately, its business, financial condition and results of
operations and its outstanding securities.
 
    IMPACT OF PORTFOLIO GROWTH AND PRODUCT MIX.  The Company has experienced
rapid growth in its loan servicing portfolio, although the rate of such growth
has slowed in 1997. Historically, the statistical incidence of delinquencies and
defaults in connection with automobile loans tends to vary over the age of the
loan. For example, statistically, loans that are between six and fourteen months
old have had a higher likelihood of being delinquent or defaulting than loans
with similar credit characteristics that are three months old. Accordingly, to
the extent that portfolio growth results in a servicing portfolio containing
disproportionately more loans originated within the prior six months, the
current and historical delinquency and default rates of loans in the servicing
portfolio may understate future delinquency and default rates. Also, there can
be no assurance that the Company's transition from centralized to regional
servicing and collection will not adversely affect the rate of loan
delinquencies and defaults.
 
                                       4
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    In addition, to the extent the Company offers new loan products which
involve different underwriting policies, the delinquency and default rates of
the Company's servicing portfolio may change. The Company has instituted a
tiered pricing system and has periodically increased the authorized amount of
loans purchased under its Classic program involving borrowers who do not meet
all of the underwriting standards in the Company's Premier program and are
charged rates of interest higher than those under the Company's Premier program.
The Company increased its purchase of loans under the Classic program from 17%
of the principal amount of loans purchased in 1995 to 36% in 1996 and to 50%
during the six months ended June 30, 1997, and in the month of June 1997, 54% of
loans purchased were Classic loans. As a result of the increases in Classic
loans as a proportion of the Company's portfolio, there has been an increase in
the rates of, and reserves for, delinquencies, repossessions and losses
historically reported by the Company. The expansion of the Classic loan program
and seasoning of the Company's existing servicing portfolio will likely continue
to cause the Company's loan performance statistics to show higher delinquencies,
gross charge-offs and net losses when compared with historical performance even
if such loan performance statistics are consistent with the Company's reserves
for loan losses.
 
    To estimate future delinquency, repossession and loss experience on its
loans, the Company uses a combination of factors, including actual loan
performance experience for that loan program, and industry experience on loans
with similar credit characteristics. However, there can be no assurance that its
loans will perform under varying economic conditions in the manner estimated by
the Company. Any increase in delinquency, repossession and loss rates related to
its loans above the rates estimated by the Company could have a material adverse
effect on the Company's business, financial condition and results of operations,
as well as its liquidity. In addition, certain of the Company's loan products
which produce higher delinquency, repossession and loss rates than initially
expected may continue to have an impact on the Company's overall loan
performance, even after being discontinued or modified, until the initially
generated loans mature beyond the six- to fourteen-month period. In 1996, the
Company discontinued a Classic loan product directed at first-time credits and
modified a Classic program for financing the sale of its repossessed inventory
in retail markets, each of which had experienced higher than expected
delinquency, repossession and loss rates.
 
    EXTENSIONS AND AMENDMENTS.  Like others in the industry, the Company gives
certain obligors extensions or amendments to loan terms in certain
circumstances, including when the Company believes such obligors will thereby be
more likely to repay their loans, and losses on such loans can be reduced. Loans
that have been extended or amended generally present substantially higher
default risks than loans that have neither of these characteristics. Primarily
as a result of the expansion of the Classic program (which involves higher
credit risks than the Premier program), the portion of the Company's servicing
portfolio which exhibits one or both of these characteristics has increased.
Extensions and amendments (in the aggregate) averaged approximately 2.7% of the
servicing portfolio per month in 1996 and 1.9% per month in 1995, and with
seasonal peaks occurring during the Christmas holiday season. Extensions and
amendments (in the aggregate) averaged approximately 3.4% per month for the
first eight months of 1997, compared to 2.7% per month for the first eight
months of 1996, and in the months of July and August 1997 were 3.0% and 2.7%,
respectively, compared to 2.9% and 2.8% in the months of July and August 1996,
respectively. The Company believes that one reason for the 1997 increase in
extensions and amendments as a percentage of the servicing portfolio is the
slower rate of growth in the size of the Company's portfolio, which results in a
higher percentage of loans of the age that are more likely to be extended or
amended. Any continued slowing of growth could contribute to a further increase
in such statistics. The Company considers these characteristics when
establishing its loss reserves. In certain circumstances, loans that have been
extended or amended have the effect of removing the related loan from delinquent
status.
 
    POTENTIAL NEGATIVE IMPACT OF COVENANTS UNDER FINANCE AGREEMENTS.  Increases
in loan delinquency and loss rates with respect to any securitization trust may
result in the trust's portfolio exceeding the various pool performance levels
established by FSA, thereby restricting or cutting off cash distributions to
ARFC from the securitization spread accounts. See "Cash Flow from
Securitizations" above. In addition, such
 
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increases may cause the Company to exceed certain pool performance tests
established in other agreements governing its indebtedness. If at the end of any
month the Portfolio Loss Ratio (as defined) exceeds 3.5% (which is calculated
excluding the effect of the Company's March 1997 special charge), the Company's
Delinquency Rates (as defined) exceed 3.5%, the Warehousing Loss Ratio (as
defined) exceeds 1.0%, or the Average Net Excess Spread (as defined) is not less
than 4.0%, an event of default will occur under one of the Company's outstanding
warehouse facilities. The delinquency level is calculated as a percentage of
outstanding principal balance of all automobile loans owned or securitized by
the Company as to which a payment is more than thirty days past due. Upon the
occurrence of an event of default under such warehouse facility, the lending
banks under such facility would have no further obligation to extend additional
credit. Furthermore, any such event of default or acceleration may trigger
cross-defaults under other outstanding indebtedness of the Company and may
result in the acceleration of amounts due thereunder. The increase in Classic
loans, among other things, has increased the risk that the Company may trigger
its Portfolio Loss Ratio covenants in the future.
 
    RESALE AND FINANCING OF REPOSSESSIONS  The Company relies significantly upon
the resale of its repossession inventory through retail markets, primarily
retail used car consignment lots. During the six months ended June 30, 1997,
approximately 55% of repossessed vehicles sold were liquidated through retail
markets, compared with 70% in 1996 and 40% in 1995. This strategy delays the
Company's excess cash flow during the period repossessions are held in inventory
pending resale, which is typically a longer period of time than for wholesale
auctions. In addition, the Company's repossession inventory has increased as a
percentage of its servicing portfolio due to the increase in the rate of loan
defaults and the Company's transition from using a few large retail consignment
lots for repossession sales to using multiple retail consignment lots. At August
31, 1997, the Company had $54.8 million of repossessed inventory, compared with
$49.0 million at June 30, 1997, $64.9 million at December 31, 1996, and $17.7
million at December 31, 1995.
 
    As of March 31, 1997, the Company took an after-tax charge of $60.8 million
due primarily to a reduction in the estimated recovery rates on then current
repossessed inventory and anticipated future inventory arising from then
existing securitization transactions to 60% of principal balance outstanding (as
discussed in the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997). The Company selected this 60% recovery rate
on the basis of the recovery rate the Company believes it could achieve if all
of its repossession inventory, including those higher value vehicles that are
ultimately sold through retail channels, were sold through wholesale channels.
In addition, the Company changed its accounting policy with respect to the
estimated recovery rate realized upon disposition of repossessed inventory to
estimate recovery rates based on such wholesale values and to record any
recoveries in excess of such levels at the time such excess recoveries are
realized. Since the Company changed its strategy at the end of the first quarter
of 1997, the Company's overall recovery rate (for both wholesale and retail
sales) has averaged approximately 62.5%. There can be no assurance that a change
in the proportions of vehicles sold through retail and wholesale channels or any
further softening of used car markets will not require additional adjustments to
repossession inventory or estimated recovery rates used to calculate finance
income receivable, which could be required if the Company's recovery rate were
to decline further. Futhermore, with the significant increase in the number of
repossessions, the Company has increased purchases of loans that finance resales
of repossessions to new buyers. Delinquency, gross charge-off and net loss rates
associated with loans on repossessed automobiles have historically been
substantially in excess of the same statistics associated with the Company's
remaining servicing portfolio. There can be no assurance that management's
recent efforts to improve the Company's retail repossession finance program will
be successful. If and to the extent the Company further modifies its current
disposition strategy with respect to use of the wholesale auction markets, this
modification could decrease recovery rates and increase net losses.
 
    POTENTIAL NEGATIVE IMPACT OF INCREASE IN PERSONAL BANKRUPTCIES.  Recent
media reports have suggested an increase in the number of personal bankruptcy
filings and the Company has in recent months
 
                                       6
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experienced a slight increase in the proportion of its servicing portfolio
representing loans to borrowers who have filed for bankruptcy protection. A
continuation or increase in such trend could contribute to greater default and
net loss rates than the Company has historically experienced.
 
ECONOMIC CONDITIONS
 
    MARKET CONDITIONS.  Periods of economic slowdown or recession, whether
general, regional or industry-related, may increase the risk of default on
automobile loans and may have an adverse effect on the Company's business,
financial condition and results of operations. Such periods also may be
accompanied by decreased consumer demand for automobiles, resulting in reduced
demand for automobile loans and declining values of automobiles securing
outstanding loans, thereby weakening collateral coverage and increasing the
possibility of losses in the event of default. In addition, recent reports of
increases in consumer bankruptcy filings and default rates on consumer credit
during a period of economic growth indicate that the impact of consumer behavior
on default rates is not limited to periods of economic slowdown or recession.
 
    The increased proportion of loans under the Company's Classic program has
increased the Company's sensitivity to changes in economic conditions.
Significant increases in the inventory of used automobiles during recessionary
economies may depress the prices at which repossessed automobiles may be sold or
delay the timing of such sales. A continuation of the recent softening of the
used car market as the result of factors including the recent start-up of
superstore competition or forecasted levels of used lease vehicles that will be
available in the market could have a similar effect on prices for and timing of
sales of repossession inventory. There can be no assurance that the used
automobile markets will be adequate for the sale of the Company's repossessed
automobiles and any material deterioration of such markets could increase the
Company's loan losses or reduce recoveries from the sale of repossession
inventory. In addition, the Company has channeled a significant portion of its
repossession inventory through retail resale markets instead of wholesale
markets, including the financing of such retail sales through its Classic
program, which had the effect of reducing the Company's loan losses while
increasing repossession inventory and delaying cash flow recovered from
inventory turnover. There can be no assurance that the Company will continue to
use such retail resale channels, that it will be able to realize such benefits
to loan losses in the future or that its inventories will not reach levels at
which they cannot readily be liquidated through such channels. Any such event
might have an adverse effect on loan loss levels.
 
    INTEREST RATES.  The Company's profitability may be directly affected by the
level of and fluctuations in interest rates, which affect the Company's gross
interest rate spread. The Company monitors the interest rate environment and
employs prefunding or other hedging strategies designed to mitigate the impact
of changes in interest rates on its gross interest rate spread. However, there
can be no assurance that the profitability of the Company would not be adversely
affected during any period of changes in interest rates.
 
    LABOR MARKET CONDITIONS.  The Company's ability to manage portfolio
delinquency, default and loss rates is dependent on its ability to attract and
retain qualified servicing and collection personnel. In recent months, low
unemployment rates driven by economic growth and the continued expansion of the
consumer credit markets have contributed to an increase in employee turnover
rate, especially among the Company's collection personnel. Continued high
turnover relative to historical levels, or an inability to attract and retain
replacement personnel, could have an adverse effect on the Company's portfolio
delinquency, default and net loss rates and, ultimately, its financial
condition, results of operations and liquidity.
 
LITIGATION
 
    On March 4, 1997 a shareholder commenced an action against the Company and
certain named directors and officers of the Company entitled Taran v. Olympic
Financial Ltd. et al. in the United States District Court for the District of
Minnesota. Four similar lawsuits, three of them in the United States District
Court for the District of Minnesota (Frank Dibella, on behalf of himself and all
others similarly
 
                                       7
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situated vs. Olympic Financial Ltd. et al., Michael Diemer vs. Olympic Financial
Ltd. et al. and Howard Pisnoy vs. Olympic Financial Ltd. et al.) and one in the
United States District Court for the Eastern District of New York (North River
Trading, LLC, and Allan Farkas, and All Others Similarly Situated vs. Olympic
Financial Ltd. et al.) were filed after that time. These suits have been
consolidated in one suit, In re Olympic Financial Ltd. Securities Litigation, in
the United States District Court for the District of Minnesota. Plaintiffs in
the consolidated action allege that during the period from July 20, 1995 through
March 3, 1997 the defendants, in violation of federal securities laws, engaged
in a scheme that had the effect of artificially inflating, maintaining and
otherwise manipulating the value of the Company's Common Stock by, among other
things, making baseless, false and misleading statements about the current state
and future prospects of the Company, particularly with respect to the Classic
program and the refinancing of repossessed automobiles. Plaintiffs allege that
this scheme included making false and misleading statements and/or concealing
material adverse facts. The consolidated action is in the preliminary stages and
the parties have not begun discovery. The Company has reviewed the complaint in
the consolidated action and believes that the consolidated action is without
merit and intends to defend it vigorously. There can, however, be no assurance
that the Company will prevail in such defense or that any order, judgment,
settlement or decree arising out of this litigation will not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
 
MANAGEMENT OF GROWTH
 
    The growth of the Company's servicing portfolio has resulted in increased
demands on the Company's personnel and systems. The Company's ability to
support, manage and control continued growth is dependent upon, among other
things, its ability to hire, train, supervise and manage its larger workforce.
Furthermore, the Company's ability to manage portfolio delinquency and loss
rates is dependent upon the maintenance of efficient collection and repossession
procedures and adequate staffing therefor. There can be no assurance that the
Company will have trained personnel and systems adequate to support such growth.
In 1996 the Company opened four regional collection centers and has taken a
number of initiatives to improve its servicing and collection performance. There
can be no assurance that these efforts will be successful.
 
COMPETITION
 
    The business of financing automobiles is highly competitive. Existing and
potential competitors include well-established financial institutions, such as
banks, other automobile finance companies, small loan companies, thrifts,
leasing companies and captive finance companies owned by automobile
manufacturers, such as General Motors Acceptance Corporation, Chrysler Credit
Corp. and Ford Motor Credit Company. Many of these competitors have greater
financial, technical and marketing resources than the Company and from time to
time offer special buyer incentives in the form of below-market interest rates
on certain classes of vehicles. Many of such competitors also have longstanding
relationships with automobile dealers and some of such major competitors provide
other forms of financing to automobile dealers, including dealer floor plan
financing and leasing, which is not provided by the Company. There can be no
assurance that the Company will be able to compete successfully with such
competitors.
 
REGULATION
 
    The Company's business is subject to numerous federal and state consumer
protection laws and regulations, which, among other things: (i) require the
Company to obtain and maintain certain licenses and qualifications; (ii) limit
the interest rates, fees and other charges the Company is allowed to charge;
(iii) limit or prescribe certain other terms of the Company's automobile loan
contracts; (iv) require specific disclosures; and (v) define the Company's
rights to repossess and sell collateral. The Company believes it is in
substantial compliance with all such laws and regulations, and that such laws
and regulations have had no material effect on the Company's ability to operate
its business. Changes in existing laws or regulations,
 
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or in the interpretation thereof, or the promulgation of any additional laws or
regulations, could have a material adverse effect on the Company's business,
financial condition and results of operations and upon its outstanding
securities.
 
SHARES ELIGIBLE FOR FUTURE SALES
 
    Additional shares of Common Stock may be issued upon the exercise of
outstanding stock options and the exercise of outstanding warrants. Certain
holders thereof have registration rights with respect to such shares. The
Company has registered pursuant to such rights the sale from time to time of up
to 5,923,364 shares of Common Stock when, as and if issued upon the exercise of
outstanding warrants. Such issuances, or the resale of the Common Stock so
acquired, could have an adverse effect on the market price of the Company's
Common Stock.
 
UNDESIGNATED SHARES; ANTI-TAKEOVER CONSIDERATIONS
 
    The authorized and unissued stock of the Company, other than shares reserved
for issuance pursuant to options and warrants, consists of undesignated shares.
The Board of Directors, without any action by the Company's shareholders, is
authorized to designate and issue the undesignated shares in such classes or
series as it deems appropriate and to establish the rights, preferences and
privileges of such shares, including dividend, liquidation and voting rights.
The Company has adopted a shareholder rights plan to deter a hostile takeover.
Further, certain provisions of the Minnesota Business Corporation Act may
operate to discourage a negotiated acquisition or unsolicited takeover of the
Company. Each or any of the foregoing could have the effect of entrenching the
Company's directors, impeding or deterring an unsolicited tender offer or
takeover proposal regarding the Company and thereby depriving the then current
shareholders of the ability to sell their shares at a premium over the market
price, or otherwise adversely affecting the voting power, dividend, liquidation
and other rights of holders of Common Stock.
 
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